Does a new painting, faux-finishing, and stenciling business need to charge sales tax to customers, and does it matter whether the work is new construction, residential remodeling, or commercial remodeling?

Plain-English summary

A new business owner planning to offer painting, faux finishing, and stenciling on customers' homes and businesses asked whether to charge Texas sales tax. The Comptroller's answer (limited to services performed on realty — not on tangible personal property like refinishing furniture) breaks into three scenarios:

1. New construction, or repair/remodeling of residential realty — you're a "contractor," and how tax on materials works depends on your contract type:

• Lump-sum contract: you're the consumer of all incorporated materials (like paint) — you pay tax to your suppliers when you buy them, plus tax on consumable supplies (brushes) and any equipment bought, leased, or rented. Your lump-sum charge to the customer is not taxable, and neither is labor.
• Separated contract: you're the retailer of incorporated materials — you collect sales tax from the customer on the agreed contract price for materials (which can't be set below your own purchase price), and may buy those materials tax-free from your supplier with a resale certificate. Labor stays untaxed. You still pay tax yourself on consumable supplies and equipment. If the contract is separated, local tax is allocated based on the job site's local taxing jurisdictions (see Comptroller bulletin 94-105).

2. Repair/remodeling of existing nonresidential (commercial) property — this is a taxable service under 34 TAC § 3.357(d). You collect tax on your total charge (materials, labor, expenses, profit, overhead combined), and you may use a resale certificate to buy incorporated materials tax-free. You still owe tax on consumable supplies and equipment.

The letter also walks through the mechanics of getting a Texas sales tax permit (forms AP-157 for sole owners, AP-201 for partnerships/corporations) and issuing/accepting resale certificates (form 01-339, per Rule 3.285) once permitted.

What this means for you

Painters, faux finishers, and decorative-wall contractors

Your tax obligations hinge on two questions: is the property residential or commercial, and is your contract lump-sum or separated? New/residential work under a lump-sum contract means you pay tax on materials yourself and charge the customer tax-free; under a separated contract you collect tax on the materials price instead. Commercial (nonresidential) remodeling is simplest but broadest — tax applies to your whole charge.

New small-business owners in trades services

Before you can issue or accept resale certificates, you need a sales tax permit — the letter gives the specific application forms (AP-157 sole owner, AP-201 entity) and points to the resale certificate form (01-339).

Accountants advising trade contractors

This letter is a good all-in-one reference for the standard three-way split (new/residential lump-sum vs. new/residential separated vs. nonresidential remodeling) that applies broadly across Texas construction and finishing trades, not just painting.

Common questions

Q: Is labor for painting or stenciling ever taxable?
A: Not for new construction or residential repair/remodeling under either contract type. It's the combined charge (including labor) that's taxable only for nonresidential (commercial) repair/remodeling.

Q: What's the difference between a lump-sum and a separated contract for materials tax?
A: Under a lump-sum contract, the contractor pays tax on materials as the consumer and charges the customer tax-free. Under a separated contract, the contractor collects tax from the customer on the materials price and buys those materials tax-free with a resale certificate.

Q: Do I owe tax on my paintbrushes and other consumable supplies regardless of contract type?
A: Yes — consumable supplies and any equipment bought, leased, or rented for the job are taxable to the contractor in every scenario described in this letter.

Q: Can any new painting/decorating business rely on this exact breakdown?
A: Not directly. This is a Texas STAR letter ruling binding on the Comptroller only for the taxpayer it addresses (34 Tex. Admin. Code Rules 3.1, 3.10), though its general framework tracks broadly applicable rules for contractors and repair/remodeling services.

Citations and references

Rules and publications:

• 34 Tex. Admin. Code § 3.357(d) (nonresidential repair and remodeling services)
• 34 Tex. Admin. Code § 3.285 (resale certificates)
• Comptroller bulletin 94-105, "Guidelines for Collecting Local Sales and Use Tax"

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/200010845L

Original ruling text

October 24, 2000

From: Emilio Lerma
[email protected]

To: **

Subject: New Business

Dear **:

I am responding to your e-mail inquiry regarding sales tax on your service.

You just started your business and you will be providing painting, faux
finishing and stenciling services to your customer's homes and businesses. You
asked if your charge to your customer for this service is taxable.

My response only addresses services performed on residential and nonresidential
realty and is not intended to address tangible personal property (e.g.
repainting furniture). If in the future you will perform this service, please
contact me regarding the taxability.

Your tax responsibility depends on the service you provide. Below I have
outlined several situations along with the tax obligations.

If you are painting, faux finishing, and stenciling new realty or are repairing
and remodeling residential realty, you are considered a contractor. The type of
contract you execute will determine how the tax on materials is treated. The
labor for new construction of realty or repair or remodeling of residential
realty is not taxable.

Under a lump-sum contract, a contractor is considered the consumer of all
materials (e.g. paint) incorporated into a customer's property. As a consumer,
a contractor must pay tax to suppliers at the time the incorporated materials
are purchased. The contractor will also pay sales and use tax on consumable
supplies (e.g. paint brushes) and all equipment bought, leased, and rented for
use on the job. The lump sum charge to the customer is not taxable.

Under a separated contract, a contractor is considered the retailer of all
materials physically incorporated into the realty. As a retailer, separated
contractors must collect sales tax from the customer based on the agreed upon
contract price of the incorporated materials. The separately stated charge for
labor is not taxable. A separated contractor may issue a resale certificate to
purchase the incorporated materials. The contractor must pay sales tax on
consumable supplies and all equipment bought, leased, or rented for use on the
job.

The agreed contract price of the materials cannot be less than the contractor's
purchase price of those materials. No tax is due on the charge for labor. The
contractor owes sales tax on all consumable materials and equipment bought,
leased, or rented for use in completing the job.

If the contract is separated, the local sales tax collected on the materials is
allocated based on the local taxing jurisdictions where the job site is
located. Please refer to our bulletin "Guidelines for Collecting Local Sales
and Use Tax" (94-105), for information on collecting local tax on taxable
services. The bulletin is available on the Window on State Government web site
at by clicking on "Texas Taxes" and then on "Tax
Publications."

Your service is a taxable repair and remodeling service if performed on
existing nonresidential (commercial) property. As the service provider, you
collect tax on the total charge for materials, labor, expenses, profit,
overhead, etc. You may give a resale certificate to your suppliers to purchase
tax-free the materials incorporated into realty. See Rule 3.357(d) on
nonresidential repair and remodeling services. You must pay sales and use tax
on consumable supplies and all equipment bought, leased, or rented for use on
the job.

If you do not have a sales tax permit, you may obtain the permit application at
our web site address:
http://www.window.state.tx.us/taxinfo/taxforms/00-forms.html. Download sales
tax permit application form number AP-157 if you are a sole owner or AP-201 if
you are set up as a partnership, corporation etc. Please mail your completed
sales tax permit application to the mailing address on the form for processing.
The permit will be mailed to your mailing address.

Once a person obtains a valid sales tax permit, the permit holder may purchase
taxable items that are resold tax-free by issuing a properly completed resale
certificate (form number 01-339) to the supplier. See Rule 3.285 concerning
resale certificates.

To view or down load referenced Rules, please go to our web site address at
http://www.window.state.tx.us/taxinfo/rulendx/rulelist3.html#sst and scroll
to the specific rule.

This opinion is rendered based on the facts presented. Other facts, though
similar, may yield different results.

If you have any questions or require additional information, you may submit
inquiries to our tax help e-mail address at [email protected], call
1-800-531-5441, extension 6-5809 or write to Tax Policy Division, Post Office
Box 13528, Austin, Texas 78711-3528.

Sincerely

Emilio S. Lerma
Tax Policy Division

On Thu, 12 Oct 2000 22:35:39 -0500 ** wrote:

To Whom It May Concern:

I have just started my own business and I am trying to find out if I need to
charge my customers sales tax. I will be painting (faux finishing and
stenciling) the interior walls of my customer's homes or businesses. If I do
need to charge sales tax, could you please tell me the necessary steps I need
to follow.

Thank you,

COMPANY A